Australian Accounting Standards Board
Chairman's report
Background
The corporate events of the past year have suddenly made accounting standard setting fashionable and have elevated so-called principle-based accounting standards above rule-based standards. Hardly a day passes without some commentator providing input as to the perceived best solutions to corporate reporting issues. The need for professional judgment is being re-emphasised.
Who would have imagined a year ago that preparers and others would now be advocating that the cost of executive options should be recognised in the statement of financial performance? Special purpose entities are today being spoken of with increased familiarity as is the need for the concept of control to be applied to the identification of entities to be included in consolidated accounts. Revenue recognition practices are under intensive scrutiny, as are the characteristics that differentiate debt from equity.
While there is a need to differentiate between non-compliance with accounting standards and inadequate accounting standards, standard setters face difficult challenges as they seek to find solutions that will enhance the transparency of financial reporting. However, it is vital that standard setters do not lose the unique opportunity available to them - post Enron, WorldCom, HIH etc. - to make a quantum improvement in worldwide financial reporting.
This is the environment in which the AASB has operated during the year ended 30 June 2002. Of even greater significance, it is the environment in which the AASB must plan for the future.
Converging Australian accounting standards with international accounting standards
In my report last year I predicted that `history will, in my view, eventually record 2001 as the year in which international accounting standard setting was transformed into a robust process designed to lead to the establishment of a set of high quality global accounting standards supported by national standard setting bodies around the world'. The activities of the IASB during the past year re-enforces my view that my 2001 prediction will ultimately prove to be correct.
The IASB issued in May 2002 an exposure draft of proposed improvements to twelve international accounting standards. A further exposure draft was issued by the IASB in June 2002 proposing amendments to IAS 32 `Financial Instruments: Disclosure and Presentation' and IAS 39 `Financial Instruments: Recognition and Measurement'.
It is also aggressively working on proposed revised standards relating to business combinations, intangible assets and impairment of assets and a new standard dealing with the recognition of share-based payments, including executive options.
Further, the European Union has confirmed that all listed EU entities will be required to adopt IAS standards in the preparation of their consolidated accounts from 1 January 2005 (2007 for certain entities that are foreign registrants). Given the size of the EU capital markets, this decision provides a substantial uplift to the immediate relevance of the work of the IASB.
The AASB's response to these IASB developments during the past year has included:
- Issue of the updated Policy Statement 4 `International Convergence and Harmonisation Policy' that reflects the workings and intention of the IASB international partnership, through which the IASB liaison standard setters have been asked to co-operate with the IASB in its quest to develop a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.
- Alignment of the work program of the AASB with that of the IASB and participation in and monitoring of key IASB projects of prime relevance to Australian standard setting. There are of course public sector and other domestic issues that require attention.
- The IASB member with liaison responsibility for Australia (Mr Warren McGregor) has been given participating observer status at AASB meetings. He is a regular attender.
- The AASB is spending increasing amounts of Board time deliberating on the tentative decisions reached by the IASB on key issues. For example, much Board time has been spent on the IASB's Business Combinations (including Intangible Assets) Phase I project.
- The AASB has been communicating with the IASB on certain tentative decisions of the IASB on which the AASB has an alternative view. These communications have related to both the Business Combinations project and the Financial Instruments project. The IASB has acknowledged and welcomed this contribution by the AASB.
- The AASB has been accepted as a partner with the IASB on the project designed to improve the IASB Standard dealing with employers' accounting for the cost of defined benefit superannuation plans. This is a high priority IASB convergence project. The improved IASB Standard will be used to fill this important gap in current AASB Standards.
- In May 2002 the AASB issued an invitation to comment on the IASB's exposure draft that seeks to improve twelve of the existing international standards. The AASB's invitation to comment requests Australian constituents to respond to the IASB with copies to the AASB, as it is the AASB's intention to converge the Australian equivalent standards with the final improved Standards. To influence the Australian output, AASB constituents must influence the IASB result.
- In June 2002, a similar invitation to comment was issued by the AASB on the IASB's Exposure Draft that seeks to improve IAS 32 `Financial Instruments: Disclosure and Presentation' and IAS 39 `Financial Instruments: Recognition and Measurement'. Again, to influence the Australian output, AASB constituents must influence the IASB result.
It is the Board's intention to pursue aggressively its `International Convergence and Harmonisation Policy', including its application to public sector and other not-for-profit accounting standard setting. The AASB is in the process of reviewing its due process procedures and work program in the light of the decision by the FRC on 28 June 2002 to support the adoption by Australia of International Accounting Standards by 1 January 2005. I hope that as the work of the IFAC PSC gathers pace, the AASB can participate in its program in a similar manner to the Board's current IASB participation. Given the current climate, I believe it is the right way forward - we must not relent.
However, the outcome of international convergence and harmonisation must be high quality, transparent and comparable reporting that is recognised globally and which assists in the efficiency of the capital markets - otherwise the process will fail. I strongly believe it will not be good enough to achieve comparability without high quality. Of course, whether high quality reporting eventuates is largely dependent on others, especially preparers (including audit committees and boards of directors), regulators and auditors.
2001-02 work program
The status of the 2001-02 program is reported in Appendix E. With the issue of two new standards, three revised standards, two revised policy statements, five exposure drafts and three invitations to comment, I believe the Board's accomplishments are commendable. In addition the Board issued a `Glossary of Defined Terms' and `The Australian Convergence Handbook'. I have no doubt the latter publication, which was prepared by the AASB technical staff, and which compares AASB Standards with IASB Standards, will prove invaluable to preparers and users as they come to grips with the implications of converging AASB Standards with IASB Standards by 2005.
2002-03 work program
The AASB's standard setting priorities for the year to 30 June 2003 have been approved by the FRC. These priorities are set out in Appendix F.
Board changes
Mr Kevin Stevenson resigned from the Board on 26 October 2001 to become Director of Technical Activities at the IASB. His in-depth technical knowledge was particularly helpful to the Board.
Mr Peter Batten and Professor Graham Peirson retired from the Board on 14 February 2002, on the completion of their two year terms. Their contributions to the Board were significant. Mr Batten brought a strong preparer perspective, while Professor Peirson's prior experience on the former Public Sector Accounting Standards Board and the former Australian Accounting Standards Board and his unbending belief in the need to be true to the Accounting Concepts were invaluable.
Professor Ken Leo, Professor of Accounting, Curtin University of Technology and Ms Suzanne Lloyd, Director Securitisation, Deutsche Bank AG, Sydney were appointed to the Board on 15 February 2002, while Ms Judith Downes, Head of Finance, ANZ Banking Group, Melbourne was appointed on 1 March 2002. Ms Ruth Picker was reappointed for a three year term, and appointed as Deputy Chair.
Urgent Issues Group
The UIG again provided a most valuable service through its interpretations of accounting standards in particular circumstances. During the year to 30 June 2002, the UIG issued nine new abstracts. The part-time members who all act on a voluntary basis are to be commended for their contribution.
Appreciation
I regard it as a personal privilege to serve as full-time Chairman of the AASB and UIG. The challenges are significant, but much has been achieved. However, as I stated in my 2001 report, none of these achievements would have been possible without the effort and contributions made by other Board members, other UIG members, the AASB technical and administrative staff and other AASB constituents, especially respondees to exposure drafts and invitations to comment. I especially note the tremendous dedication of the AASB technical staff under the leadership of Mr Angus Thomson, Technical Director.
They continually believe in and strive for standards that will result in high quality financial reporting. As AASB Chairman I find them an inspiration. The work of the administrative staff greatly assists the efficiency and effectiveness of the day-to-day operations of the AASB.
I am grateful for all the efforts of all participants. As we work towards the convergence of AASB Standards with IASB Standards by 2005, nothing could be more important than the continuation of this participation.
SIGNED
Keith Alfredson
Chairman of AASB
5 September 2002
AASB Directors' report of operations
Technical activities of AASB during 2001-02
Membership and meetings of AASB
The Chairman and members of the AASB are appointed under section 236B of the ASIC Act. For the period covered by this report the responsible Minister was the Treasurer, the Honourable Peter Costello. The Chairman is appointed by the Treasurer while other members are appointed by the FRC.
To be eligible for appointment, a person must have knowledge of, or experience in, business, accounting, law or government. The Chairman and members hold office on the terms and conditions that are determined by the Treasurer and FRC respectively. Appointments may be made for a period of up to five years and retiring members are eligible for reappointment.
The members of the AASB during 2001-02 are listed in Appendix B. The Board held 13 meetings for a total of 20 meeting days during the year, and attendance of members at these meetings is set out in Appendix D.
Standard setting
The AASB has responsibility for accounting standard setting. A full list of Accounting Standards, Statements of Accounting Concepts and Policy Statements and their issue dates is at Appendix G.
During the year, the Board issued or reissued the following standards and other documents:
New standards
AASB 1020A Amendments to Accounting Standard AASB 1020 and Australian Accounting Standard AAS 3 (issued June 2002).
AASB 1044 Provisions, Contingent Liabilities and Contingent Assets (issued October 2001).
Revised standards
AASB 1018 Statement of Financial Performance (revised June 2002).
AASB 1039 Concise Financial Reports (revised June 2002).
AASB 1041 Revaluation of Non-Current Assets (revised July 2001).
Policy statements
PS 4 International Convergence and Harmonisation Policy (revised April 2002).
PS 5 The Nature and Purpose of Statements of Accounting Concepts (revised July 2001).
Exposure drafts
ED 102 International Convergence and Harmonisation Policy (issued July 2001).
ED 103 Investment Property (and Consequential Amendments to AASB 1021/AAS 4 and AASB 1041) (Issued December 2001).
ED 104 Impairment of Assets (issued March 2002).
ED 105 Statement of Financial Performance: Amendments to AASB 1018/AAS 1 (issued April 2002).
ED 106 Director, Executive and Related Party Disclosures (issued May 2002).
Invitations to comment
The AASB issued Invitations to Comment in respect of:
- Proposed Improvements to International Accounting Standards and their Impacts on Australian Standards (issued May 2002);
- Proposed Improvements to International Accounting Standards IAS 32 `Financial Instruments: Disclosure and Presentation' and IAS 39 `Financial Instruments: Recognition and Measurement' (issued June 2002); and
- Proposed revisions to AASB 1018 and AAS 3 `Statement of Financial Performance' (issued September 2001).
Other documents
- Australian Accounting Standards Board Glossary of Defined Terms (June 2002).
Books
- The Australian Convergence Handbook (issued February 2002).
Urgent Issues Group
The UIG's purpose is to review on a timely basis in the context of existing Accounting Standards and Statements of Accounting Concepts, accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, with a view to reaching a consensus as to the appropriate accounting treatment. The UIG comprises 15 (16 to May 2002) members drawn from a wide range of constituent groups. A consensus of the UIG requires that 11 or more members vote in favour of, and no more than 3 members vote against, the proposed treatment for the issue in question. The AASB has a reserve power of veto over UIG consensus views. A UIG consensus view is published in an Abstract. A full list of UIG Abstracts and their issue dates is at Appendix G.
The following abstracts were issued during the financial year:
New
Abstract 39 Effect of Tax Consolidation Proposals on Deferred Tax Balances (issued July 2001).
Abstract 40 Non-Reciprocal Transfers within an Economic Entity for Monetary or No Consideration (issued September 2001).
Abstract 41 Fair Value of Equity Instruments Issued as Purchase Consideration (issued September 2001).
Abstract 42 Subscriber Acquisition Costs in the Telecommunications Industry (issued October 2001).
Abstract 43 Classification of Financial Instruments with Conversion Options (issued November 2001).
Abstract 44 Acquisition of In-Process Research and Development (issued February 2002).
Abstract 45 Subsidiary becomes a Joint Venture Entity or an Associate (issued April 2002).
Abstract 46 Initial Foreign Currency Translation for Redomiciled Entities (issued April 2002).
Abstract 47 Professional Indemnity Claims Liabilities in Medical Defence Organisations (issued June 2002).
Due process
The AASB adopts a comprehensive `due process' (outlined in PS 1 The Development of Statements of Accounting Concepts and Accounting Standards) when developing its pronouncements, and encourages the preparers and users of financial reports to participate actively in the standard-setting process by:
- communicating its views and policies to a broad range of interested parties via discussion papers, accounting theory monographs, invitations to comment and exposure drafts;
- meeting with representatives of interested parties and organisations;
- inviting public comment on its policies, procedures, priorities and standards under consideration;
- issuing media releases related to its activities; and
- maintaining a website (www.aasb.com.au).
In addition, the AASB publishes an AASB Action Alert to keep interested parties informed of the AASB's deliberations at each of its meetings.
The UIG adopts a more limited `due process' under which minutes of its meetings, issue proposals, issue summaries and draft Abstracts are freely available on the website.
Consultative group
The AASB Consultative Group brings together a wide cross-section of interest groups in the private, public and not-for-profit sectors. The purpose and operation of the Consultative Group is set out in Policy Statement PS 2 The AASB Consultative Group as revised and reissued in June 2001.
The Consultative Group held one meeting during the year in March 2002.
Liaison with constituents
The AASB meets with a wide range of people to discuss matters of interest both generally and in relation to specific projects.
Use of website
The AASB maintains a website (www.aasb.com.au). The website is used to provide information about the AASB, its activities and work program to its constituents and other interested parties and the UIG and its activities. Authoritative pronouncements are published on the website and may be downloaded free of charge. The AASB also publishes meeting agendas and copies of key AASB Board papers on its website, prior to meetings. The AASB publishes brief summaries of key projects on the Board's website outlining the background to each project and recent progress and Board decisions. The AASB also uses the website to seek comments on exposure drafts and invitations to comment in order to facilitate urgent action on projects.
Seminars
Members of the AASB and its staff are available to present papers on matters relating to the AASB's work program at seminars, congresses and conferences held throughout Australia. The Chairman made one presentation at an international conference during 2001-02.
Indemnities and insurance premiums for directors and officers
No indemnities have been given or agreements made in respect of any current or former officer of the AASB, including FRC Directors. The AASB has arranged professional indemnity insurance with COMCOVER, to a value of $20 million and at a cost of $11,550.
AASB publications
All authoritative pronouncements issued by the AASB and UIG, including Statements of Accounting Concepts, Policy Statements, Accounting Standards (AASB and AAS series), Accounting Interpretations and UIG Abstracts, are available for purchase from the AASB and are published on its website. A full list of pronouncements currently on issue is at Appendix G.
The AASB also publishes a range of other documents, including:
- an AASB Action Alert to keep interested parties informed of the AASB's deliberations at each of its meetings;
- AASB and UIG media releases;
- exposure drafts of proposed new and revised accounting standards;
- invitations to comment (often concerning exposure drafts issued by the International Accounting Standards Board);
- Accounting theory monographs;
- consultative and discussion papers issued in conjunction with the IASB and other national accounting standard setters; and
- Transparency, a periodical newsletter on the activities of the AASB.
The AASB provides subscription services in respect of most of these documents. In addition, individual copies are available for sale. Further information can be obtained from the AASB using the contact details set out below. Accounting standards, UIG abstracts, exposure drafts, invitations to comment and policy statements are freely available on the website.
Freedom of information
The AASB maintains possession of the following documents:
- copies of accounting standards;
- copies of exposure drafts and invitations to comment;
- copies of media releases;
- AASB and UIG meeting agenda papers;
- correspondence with constituents, including responses to exposure drafts and invitations to comment; and
- Internal technical and administrative papers, including project proposals, key decisions questionnaires, issues papers, draft exposure drafts and draft accounting standards.
Requests under the Freedom of Information Act 1982 for access to other documents in the possession of the AASB can be directed to the AASB Secretary using the contact details set out below.
No applications under the Freedom of Information Act 1982 were received by the AASB during the year.
Commonwealth disability strategy
The AASB is committed to applying the Commonwealth Disability Strategy (CDS) and has instituted activities that contribute to meeting its requirements. The role of the AASB is specified elsewhere in this report. For the purposes of the CDS, the AASB performs Policy Adviser and Regulator roles.
Commonwealth Disability Strategy performance reporting
| Requirement for role | How met |
| Provision of accessible policy, program and regulatory information | |
| Internet format | AASB: all news items, policy statements, accounting standards, exposure drafts and other formal accounting regulatory documents are available on a Government Standards compliant website. |
| Disk format | Contact details for the AASB are available on its website. Users can call or write to request material on disk. |
| Plain English communication | Where possible, general information is written in plain English. However, some financial reporting matters are highly complex and require the accuracy of technical language. |
| Consultation | The AASB consults widely in its own right, with users, preparers and others interested in financial reporting.Because the nature of AASB activity is broad, and focuses on capital markets, specific consultation with people with disabilities is generally inappropriate. |
| Complaint or grievance mechanisms | Contact details for the AASB are available on its website. People can call or write to register any complaint. |
Contacting the AASB
The AASB can be contacted as follows:
Post: The Secretary
Australian Accounting Standards Board
PO Box 204
Collins St. West
MELBOURNE VIC 8007
Telephone: (03) 9617 7600
Facsimile: (03) 9617 7608
Document Exchange DX 30897 Document Exchange
E-mail: standard@aasb.com.au